The portion of an option's premium above its intrinsic value, reflecting the possibility of further favorable price movement before expiry.
Time value, also called extrinsic value, is the part of an option’s premium that exceeds its intrinsic value. It reflects the probability that the option could become more profitable before expiry, driven by factors like time remaining and implied volatility. Time value is highest for at-the-money options with longer time to expiry and erodes steadily toward zero as the expiry date approaches, a process known as theta decay.
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